10 Stocks Shrinking Shares

Stock buybacks are generally considered a bullish signal on Wall Street. They return capital to shareholders, while declaring management's belief that its own cheap shares are its best return on investment. As long as profits remain consistent, share repurchases can even increase earnings per share, by dividing the same amount of earnings among a smaller pool of shares outstanding.

Today we'll draw up a list of companies that have announced stock buyback programs, then consult Motley Fool CAPS to see which of those companies the 105,000-strong investor community favors most. If CAPS' top investors endorse the prospects of companies announcing buybacks, Fools should take notice.

Here are some of the latest companies to announce share repurchase programs.

Company

Buyback
Announcement Date

Amount of Buyback

CAPS Rating
(5 max)

Systemax (NYSE:SYX)

5/12/2008

2 million shares

*

LB Foster

5/12/2008

$25 million

****

Novell

5/13/2008

$100 million

**

Safeway (NYSE:SWY)

5/14/2008

$1 billion

**

MGM Mirage (NYSE:MGM)

5/14/2008

20 million shares

**

JDS Uniphase (NASDAQ:JDSU)

5/15/2008

$200 million

***

Cree (NASDAQ:CREE)

5/15/2008

5 million shares

***

Echelon (NASDAQ:ELON)

5/15/2008

3 million shares

***

El Paso (NYSE:EP)

5/15/2008

$300 million

*****

Advance Auto Parts

5/16/2008

$250 million

****

Sources: Company press releases; Motley Fool CAPS.

Investors at CAPS seem to have mixed feelings about this group of companies, with only three receiving four-star or better ratings.

A company is not obligated to repurchase shares just because it's announced its intention to do so. Buybacks have been partially fueled by the easy credit policies of the past few years. Companies didn't mind borrowing big bucks to repurchase their shares even if they were trading at all-time highs.

According to Dealogic, there were $538 billion in buybacks last year among S&P 500 companies, with $122 billion in the fourth quarter alone. Yet announced buybacks in the first quarter of 2008 have slumped to just $76 billion. With credit policies tight, we may see far fewer share repurchase programs in 2008 and more companies issuing shares to raise money.

A naturally gaseous state
Rising fuel prices haven't been limited to oil. Natural gas has also seen elevated levels. A recent announcement by Enterprise Product Partners that its pipeline offshore in the Gulf of Mexico won't be repaired until mid-June isn't helping. Some 900 million cubic feet of supply won't be hitting the market as demand climbs. That means that even if the thirst for oil is slaked, we'll probably still see natural gas prices climb.

That bodes well for companies like El Paso, a natural gas exploration, production, and transmission operations company. It has an estimated 2.9 trillion cubic feet of natural gas equivalents in proved natural gas and oil reserves.

While the short-term outlook remains positive for natural gas companies, investors like CAPS All-Star ww2004 see long-term trends also in El Paso's favor:

Remaining convinced the natural gas market will be strong for many years, I continue to look for companies well positioned to take advantage of that. El Paso has the business covered with both exploration/production and pipeline/delivery. The past performance should continue based on all the information I can dig up. Recent insider purchasing is a plus.

CAPS investor vanscj says El Paso has been overlooked by the market, but that its recent financial performance suggests that might soon change:

This is the year for natural gas. As oil and coal get more expensive, people will buy more natural gas. El Paso Corp is a natural gas pipeline and exploration company. [El Paso] is only up about 3.2% on the year and its competitors are up an average of 31.4% for the year. I believe that it has been overlooked and the stock is ready to increase in price. [El Paso] has produced double digit revenue growth and [has] lowered their margins.

Foolish fallout
You've heard from your fellow investors, now it's your turn. Motley Fool CAPS is a completely free, fun service where more than 105,000 investors have their say every day. Sign up for CAPS today, and share your best pitch for why your favorite stock will beat or lag the market.


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